This guide explains the rules for transferring any unused basic threshold and unused residence nil band rate (RNRB).
If there are any thresholds that have not been fully used when the first person in a marriage or civil partnership dies, the unused part can go to the surviving husband, wife or civil partner when they die.
The basic tax-free threshold
The basic tax-free threshold available when a wife, husband or civil partner dies can be as much as £650,000 if none of the £325,000 threshold was used when the first of the couple died.
The percentage of the threshold that was not used when the first partner died increases the basic threshold that’s available to their estate .
A man dies leaving legacies totalling £600,000. He leaves £130,000 to his children and the rest to his wife. The available threshold at the time was £325,000.
The legacies to the children would use up 40% (£130,000 ÷ £325,000 x 100) of the threshold, leaving 60% unused.
When his wife dies, the threshold is still £325,000. Their available threshold would increase by the unused percentage (60%) to £520,000.
If his wife’s estate is not worth more than £520,000 there’ll be no Inheritance Tax to pay when she dies. Inheritance Tax would be payable on anything above £520,000.
Transferring any unused basic threshold
The estate’s executors must claim to transfer the unused basic threshold when the husband, wife or civil partner dies.
Unused residence nil rate band (RNRB)
Any RNRB that’s not used when someone dies can go to their husband, wife or civil partner’s estate when they die. This transfer can also happen if the first of the couple died before 6 April 2017, even though the RNRB was not available at that time.
The RNRB and any transferred RNRB is available if the surviving husband, wife or civil partner:
- leaves a home to their direct descendants
- includes the home in their estate
The home that the surviving husband, wife or civil partner leaves to their direct descendants does not have to be the same home that they lived in with their partner to either qualify for the RNRB or to transfer it.
The surviving husband, wife or civil partner does not have to have previously owned the home with their late partner, or inherited it from them. It can be any home as long as the surviving spouse or civil partner lived in it at some stage before they died and the home is included in their estate.
If the surviving husband, wife or civil partner sold or gave away their home on or after 8 July 2015 and they leave other assets to their direct descendants when they die, the RNRB may still be available under the downsizing rules.
Couples who are not married or in a civil partnership, or who’ve divorced, will still be able to benefit from the RNRB individually if they leave a home to their direct descendants. However, they will not be able to transfer any unused RNRB to each other.
Where the first of the couple died before 6 April 2017 their estate would not have used any of the RNRB as it was not available. So 100% of the RNRB will be available for transfer unless their estate was worth more than £2 million and the RNRB is tapered away.
It’s the unused percentage of the RNRB that’s transferred, not the unused amount. This makes sure that if the maximum amount of RNRB increases over time, the survivor’s estate will benefit from the increase.
You calculate the actual amount that’s transferred to the surviving spouse or civil partner’s estate in 2 steps:
Work out the percentage of RNRB that was not used when the first of the couple died. You do this by dividing the unused amount of RNRB by the total RNRB that was available when the first of the couple died and multiplying the result by 100. If the person died before 6 April 2017 the unused RNRB and total available RNRB are both deemed to be £100,000 so the unused percentage is 100%.
Multiply the percentage of unused RNRB when the first of the couple died by the maximum RNRB available at the time of the survivor’s death. This gives you the sum available to transfer.
A man died in 2015 and left his entire estate of £600,000 to his wife. This was before the RNRB was available, so 100% is available to transfer to his wife’s estate.
His wife dies on 30 July 2019 and leaves all her estate, including a home worth £400,000 to her daughter.
When she dies in the tax year 2019 to 2020, the maximum available RNRB is £150,000.
Her executor makes a claim to transfer the unused RNRB from his estate.
So the total available RNRB for his wife’s estate will be £300,000 (£150,000 + (transfer of 100% x £150,000)).
Transferring any unused RNRB
The estate’s personal representative will need to give details of the amount due and supporting information on the Inheritance Tax return.
They’ll make a claim to transfer any unused RNRB from the estate of a late husband, wife or civil partner.
As the RNRB and basic Inheritance Tax threshold are not linked, the percentages transferred can be different. This means that even if all of the basic Inheritance Tax threshold was used when the first of the couple died, you can still transfer the unused RNRB.
The percentage of transferred RNRB is limited to 100%. This means that if an individual has had more than one spouse or civil partner and they make a claim to transfer the unused RNRB from each one, the total transferred RNRB cannot be more than 100% of the maximum available amount.